business essay

Identify an international organisation and assess its strategic capacities

Published: 23, March 2015

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Tesco is the most important retailer in U.K. It manage over a number of various supermarket, hypermarkets, and expediency provisions within the U.K, Ireland, Central Europe and Asia. This learning explores the competitive advantage, strategic capacities, Tesco culture, strategic development of tesco and the various challenges faced by the Tesco from its competitors .The retail- industry become very aggressive. These study analysed the profile, which is extremely significant within planned and reasonable learn of an organisation, particularly within the trade and service-industry.

Introduction:

Jack Cohen (Tesco, 2008) founded Tesco Plc (TSCO.L) in 1919. After expanding into every available market in the United Kingdom, including developing new store formats for small areas (Tesco Metro) and a superstore format (Tesco Extra), new product lines such as electronics and home goods, and an environmentally-aware range of foods, the company began to expand internationally (Tesco, 2008). The first expansion was in 1995, when Tesco opened a store in Hungary (Tesco, 2008). Poland, the Czech Republic, Slovakia, Northern Ireland, the Republic of Ireland, Taiwan, Thailand, and South Korea followed this initial expansion in the 1990s (Tesco, 2008). Today, Tesco serves a total of twelve international markets, plus all areas of the United Kingdom (Tesco, 2008).

Strategic Capacities of Tesco:

The following discussions will establish the strategic capacity of the company, which are:-

Resource Audit

The following discussions will be pinpointing the resources that Tesco have amassed over the years and could be used whenever their operations require it. More specifically, discussions on the financial, human, physical, and intangible resources will be given. Â

A.Â Â Â Financial Resources

The following discussions will provide a clear indication as to whether Tesco is able to support any future strategic initiatives. Early reports on the company have indicated that they have broken the billion dollar mark with reference to their profits. (Child 2002, 135) This has been substantiated in the 2005 annual report of the company as it indicated that it has accumulated over two billion pounds worth of profit. (Tesco Plc 2006) Basically, this is a hands-down indication that the company is more than financially capable in funding its strategic endeavours. Â Â

B.Â Â Â Human Resources

In UK, Tesco employs over 270,000 emloyees. (Tesco Plc 2007b) With the training and career opportunities provided by the company, they have achieved an 84.1% of retention which basically shows that the company is taking good care of their employees. The website also indicated that in the past years, they have "appointed 27 Directors, 200 Store Managers and 8,000 Department Managers"Â all of which are from the pool of employees that they have in their organisation. Â

C.Â Â Â Physical Resources

The company prides itself with the hundred of establishments that carries its brand name. The claims in their website indicate that Tesco manages five types of store arrangements. These stores are spread around strategic places all over the United Kingdom. For instance,Â HomeplusÂ is the type of Tesco store that is most recently introduced in UK. It is a standalone store that offers non-food merchandise. The remaining types,Â Extra, Superstore, Metro,Â andÂ Express,Â are among those that has been raking all the profit for Tesco's UK operations

The Express stores are characterised as those with the smallest space which could pass up as the company's version of the convenience store. It is said to have 735 stores all over UK to date making it occupy at least 5% of the total land area of the region. On the other hand, the 162 Metro stores are those that are situated in the busy streets of UK. Occupying at least 7.3% of the land area of UK, it is scattered in malls and other city centres. Possibly the most famous stores of Tesco is its chain of Superstores. With four hundred thirty-three stores, it occupies 53.7% of the total space in UK. This means that it covers a very large area housing foodstuff and other non-food merchandise. Lastly, the Tesco Extra stores are deemed as the largest in terms of area with over sixty-thousand square feet per store. In its 147 establishments, it provides the public their food and non-food items at the most reasonable price.

D.Â Â Â Intangible Resources

Tesco is considered as among the world's top organisations that manage a loyalty system with their core customers. In accordance with their website, there are more than thirteen million individuals in UK who owns a Tesco club card. This denotes that Tesco have this amount of individuals guaranteed to purchase in their stores in the future. Therefore, it seems that the organisation has established its edge over the Sainsbury's, Safeway, Asda and Somerfield as seen in their consumer's loyalty.

Competitive Advantage of Tesco:

The following discussions will provide an account on how the company acquires competitive advantage over its competitors. (Porter 1985, in Swiercz and Spencer 1992, 35)

A.Â Â Â Primary Activities

In the case of logistics, both inbound and outbound, Tesco is one of the first proponents of "stack 'em high, sell 'em cheap" approach to the retail industry. This means that each store would be placing a considerable amount of their inventory in the open shelves as display for easy access for the consumer. Their main suppliers are players from the consumer product industry as well as local producers. For instance, the meat products as well as the greens section are often filled from British farmers and work with the state (Red Tractor standard) to ensure that the products are of high quality. Â Â

In terms of operations and service, these activities are often carried out in individual stores of Tesco. The sales of each store tend to equate with the type of service provided by the personnel assigned in the same store. Normally, these employees are also the ones who inform the consumers with the new programmes and marketing initiatives of the company.

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B.Â Â Â Support Activities

In the case of support activities, the company makes sure that the resources procured and sold in their stores are acquired from local distributors. This is especially true for the perishable merchandise that they sell. In the case of human resource development, the company follows a programme that allows career growth for their diverse staff. They have training programmes, apprenticeships, and agenda for their "seasoned" personnel. At any rate, the company still follow the basic principle of care for their people, both internal sand external of the organisation.

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Core Competencies

The following discussions will provide a description of the activities that the competitors of Tesco have a hard time emulating.

1.Â Â Â Â Card Club

In 1995, Deputy Director of Tesco, Terry Leahy, introduced the card club scheme. (Tesco ClubcardÂ 2007) Initially, the concept was then ignored and was met by apprehension by the other members of the company. Nevertheless, the said design went out to be an enormous achievement for Tesco which fundamentally prompted a new formula for the retail industry as the other stores have attempted to establish their individual loyalty card agendas.

The club card system, in accordance with the Tesco site, is a form of showing gratitude by the organisation to its loyal buyers. Essentially, the card permits the owners points as they pay for merchandise sold in Tesco establishments. Moreover, these points that they build up in these cards will likely offer the customers a way of gathering vouchers or coupons which amount to certain gifts or discounts in the stores. Particularly, for every 250 points, the owner of a card is able to collect a voucher that they could employ to buy other merchandise offered in the stores. The most current series in operation in their card club is the trade of vouchers intoÂ Deals.Â TheseÂ dealsÂ vary from airline miles, journal subscriptions and even free jewellery.Â

Tesco Culture:

Corporate culture is one of the main determinants of success or failure in a business development practice, because it largely determines how flexible, accepting of change and innovative a company tends to be. Fairfield-Sonn (2001: 36) provided a four-layer model of corporate culture that included cultural artefacts, cultural history, core ideology and core values that helps to quantify and describe the corporate culture of an organization. Thus, Tesco's corporate culture can be determined from its corporate responsibility statements, which describe its core values and core ideologies as well as some aspects of cultural artefacts.Â

Tesco's stated core priorities include:

Ensuring community, corporate responsibility and sustainability are at the heart of our business.

These values have had a significant impact on the way in which Tesco does business, as well as its financial performance. For example, its expansion into California was designed to be not only profitable, but also socially responsible. As in the United Kingdom, American inner cities have a food supply problem wherein there are few large supermarkets and the smaller supermarkets do not have an adequate supply of fresh foods, including fruits, vegetables and proteins (Wankel & Stoner 2007: 223). Because supermarkets are reluctant to build in the inner cities and many residents do not have transportation outside the area, inner city residents do not enjoy an appropriate diet, and suffer health consequences as a result (Wankel & Stoner 2007: 224). Tesco's corporate culture priorities allowed the company to consider opening stores in areas where native supermarkets were reluctant to go, and to provide services to the area that the local providers either couldn't or didn't consider. Thus, they opened stores in underserved regions, not only allowing them to express their core ideals, but also providing an opportunity to enter an almost untapped market. Although native retailers have scrambled to enter the markets in which Tesco is now providing services in the United States, Tesco will continue to have the advantage in terms of the markets it has already entered; it also has a corporate culture that encourages the expansion and service of these areas.

Another area in which the company's business development practices have both impacted and been impacted by the corporate culture is the introduction of lines of natural, organic and free-range foods to its stores beginning in the 1990s, and continuing into its development of the Nature's Choice sustainable production lines over the past few years (Tesco, 2008). These lines, which include organic fruits, vegetables, meats and other proteins, dairy products, free-range eggs and other responsibly produced goods, has increased its importance in recent years to the company's bottom line due to growing awareness of environmental factors by customers. The provision of lifestyle ranges like those above is one of the core strategies of the Core UK strategic business unit (Tesco 2008), as it provides the opportunity to reach the greatest number of customers, particularly those who believe that the way in which food was produced is as important as the food itself. However, this provision is also mandated by the company's corporate culture's core ideals, particularly those of environmental responsibility and awareness. These ideals entered the corporate culture in the mid-1990s, at about the same time as the first environmentally aware lifestyle product range (that of free-range eggs) was introduced (Tesco 2008).

Strategy Development at Tesco:

Tesco has a well-established and consistent strategy for growth, which has allowed us to strengthen our core UK business and drive expansion into new markets.

The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong sustainable long-term growth by following the customer into large expanding markets at home - such as financial services, non-food and telecoms - and new markets abroad, initially in Central Europe and Asia, andÂ more recentlyÂ in the United States.

The strategy to diversify the business was laid down in 1997 and has been the foundation of Tesco's success in recent years. The new businesses which have been created and developed over the last 12 years as part of this strategy now have scale, they are competitive and profitableÂ - in fact we are now market leader in many of our markets outside the UK.

The Group has continued to make good progress with this strategy, which has five elements, reflecting our four established areas of focus, and also Tesco's long-term commitments on community and environment. Importantly, the momentum which it has given the business has allowed the Group to continue to grow well through the economic downturn.

The objectives of the strategy are:

To be a successful international retailer

To grow the core UK business

To be as strong in non-food as in food.

To develop retailing services - such as Tesco Personal Finance, Telecoms and Tesco.com

To put community at the heart of what we do.

Future Prospects and Challenges

In order for business development to continue to be successful, it must be sustained. Currently, Tesco has a number of business development areas in which it could focus. The growth of the non-food business unit holds great promise, as it could take advantage of the growing demand for these products. However, this business unit's effectiveness may be compromised by current economic conditions. Sales of non-food products are largely driven by consumer confidence ratings, which are currently at a low (Cohen 2008). This means that the sale of large durable goods and luxury items, in particular, may be considerably depressed as consumers try not to make unnecessary purchases due to economic anxieties. Thus, continued development in the non-food strategic business unit may be counterproductive until the economic outlook improves. Before undergoing any further development in this area, a careful risk assessment should be undertakenÂ

A more successful area of business development may be the Core UK's development of environmentally aware and ethical food ranges. The public awareness of the environmental impact of their food is increasing, aided by campaigns by individuals like Jamie Oliver and Prince Charles raising the awareness of the importance of food quality and food sustainability. A growing awareness of the need for ethical treatment of animals is also a major feature of modern UK society, and should be taken into account. Natural and organic ranges, including not only foods but also cleaning products and personal hygiene products, are becoming exponentially more popular in today's society. This represents significant opportunity for Tesco to continue their development of these lifestyle ranges, particularly if they can reduce the costs of production and sale in order to make the goods more affordable to individuals who currently from purchase traditional ranges due to financial restrictions. Many people would be wiling to pay a small premium for these goods, but cannot afford the 50% or greater premium currently on them. Tesco's Nature's Choice range has already begun to explore ways to reduce the costs of ethically and responsibly produced foodstuffs; this development could continue to be enhanced as a way of capturing more of the market for them.Â

Finally, Tesco has an opportunity in the International market to increase its market penetration in the United States and the rest of North America by following its current strategy of entering underserved markets. This strategy has proven successful to this point, and will likely continue to be successful due to American food retailers' reluctance to enter these areas. However, if further expansion into the United States is pursued it must be strictly governed by risk assessments that take into account the difficulty of creating a transport and supply chain network across regions; this could rapidly decrease the financial benefit gained by Tesco from these additional stores and reduce the effectiveness of the development activity. Thus, development should be concentrated in urban areas and should take place using a cluster-spread approach, rather than placing stores indiscriminately. One benefit of this approach is that food sales are often not significantly affected by economic downturns, unlike non-food goods. If Tesco can tap into the underserved market for fresh foods in the American inner cities and continue to provide reasonably priced and quality goods to these markets, they will continue to reap the rewards of this development activity even through economic downturns.

Â Conclusion

The report highlights that in the retail industry of UK, a standard of service accepted by the public is already established. This standard has is required to all the major players in the said industry and has become so common that the consumers have regarded it as somewhat negligible. The success of Tesco shows that knowing what the consumer needs defines the level of success that one could acquire. In their case, they focused their attention on convenience and customer relationship management. With the combination of these two factors, they have taken the retail industry by storm as loyal customers come flocking their chain of stores.

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